MNC profits sent abroad ?dodging tax?

Multinationals, the Income-Tax (I-T) department has claimed, have found a unique way of evading tax. An investigation completed in December 2006 showed that many of them simply adjusted profits made in India against losses incurred in other countries to avoid paying tax. I-T sleuths found that about Rs 1,000 crore of profits were thus never declared and tax on them never paid.

I-T department officials, who declined to be named, said their Assessment Wing was sending out notices to the evaders, demanding that they cough up Rs 1,400 crore in taxes and penalties.

The officers said 140 multinationals had been identified as evaders from the 570 firms investigated in Mumbai.

The overseas transfer of profits detected so far this financial year is double that of last year.

A senior I-T officer said these multinationals comprised 91 per cent of the violators this year, while the rest were domestic. He identified automobiles, pharmaceuticals, banking and financial institutions, logistics, chemicals and information technology as the sectors in which such illegal transfer of profits was rampant. The top defaulting domestic sector was diamond works.

Explaining the modus operandi, an officer said the branches in Mumbai adjusted profits by transferring them to their branches or sister concerns overseas.

"This way, they evade taxes in both countries," the officer said. Some companies transferred profits by "shifting funds to tax havens like Mauritius and the Virgin Islands".

The I-T department, the officer added, is asking the Union Finance Ministry for permission to reinvestigate last year’s records of the defaulters.